Securities Appellate Tribunal
Sagar Vilas Daundkar vs Sebi on 10 October, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 10.10.2022
Appeal No. 654 of 2022
Sudhir Bapusaheb Devkar
Flat A206, Kamalraj Parijat,
Dighi-Alandi Road, Dighi,
Pune 411015. ..... Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
With
Appeal No. 655 of 2022
Sagar Vilas Daundkar
H. No. 38, Dawadi Road, Daundkarwadi,
Pune, Maharashtra 410 501. ..... Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
2
Mr. Kunal Katariya, Advocate with Mr. Sahebrao Wamanrao
Buktare, Ms. Ashmita Goradia, Advocates and Mr. Ravi Vijay
Ramaiya, CA i/b Shah & Ramaiya, Chartered Accountants for the
Appellants.
Mr. Abhiraj Arora, Advocate with Mr. Shourya Tanay, Advocate i/b
ELP for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1.Two separate appeals have been filed against the separate orders of the same date. Since the issue involved is common, both these appeals are being decided together at the admission stage without calling for a reply. For facility, the facts stated in Appeal No. 655 of 2022 Sagar Vilas Daundkar vs. SEBI is taken into consideration.
2. The company Mindtree Ltd. intimated Securities and Exchange Board of India (hereinafter referred to as "SEBI") vide letter dated October 26, 2018 regarding the violation of the Code of 3 Conduct framed by the company under the provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as 'PIT Regulations') by two of its employees and the action taken by the company. Based on the letter, SEBI initiated an investigation which revealed that the appellants who were employees of the company had transacted in the company's scrip during the period January 1, 2019 to March 31, 2019. The investigation revealed that the appellants had done transaction aggregating to a traded value in excess of Rs. 10 lacs over a calendar quarter. The investigation further revealed that the appellants did not disclose to the company which was required under Regulation 7(2)(a) of the PIT Regulations.
3. Consequently, adjudication proceedings were initiated against the appellants and a show cause notice was issued to show cause as to why appropriate penalty should not be levied for violation of Regulation 7(2)(a) of the PIT Regulations.
4. The Adjudicating Officer (hereinafter referred to as 'AO') after considering the replies found that the appellants had traded over Rs. 10 lacs in a calendar quarter and were required to make an appropriate disclosure to the company within two trading days which 4 was not done. The AO, consequently, found that the provisions of Regulation 7(2)(a) of the PIT Regulations had violated and imposed a penalty of Rs. 1 lac under Section 15A(b) of the Securities and Exchange Board of India Act, 1992.
5. We have heard Mr. Kunal Katariya, the learned counsel with Mr. Sahebrao Wamanrao Buktare, Ms. Ashmita Goradia, the learned counsel and Mr. Ravi Vijay Ramaiya, CA for the appellants and Mr. Abhiraj Arora, the learned counsel with Mr. Shourya Tanay, the learned counsel for the respondent.
6. Before we proceed further, it would be appropriate to refer to the provisions of Regulation 7(2)(a) of the PIT Regulations which is extracted hereunder :-
"7(2) Continual Disclosures.
(a). Every promoter, employee and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified."5
7. With effect from April 1, 2019, the aforesaid provision was amended which is as under :-
"7(2) Continual Disclosures.
(a). Every promoter [member of the promoter group], [designated person] and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified."
8. From the aforesaid, it is clear that prior to the amendment every employee of the company was required to disclose such securities acquired or disposed of within two trading days of such transaction where the value exceeded Rs. 10 lac in a calendar quarter. The word 'employee' was substituted with the word 'designated person' with effect from April 1, 2019, meaning thereby that with effect from April 1, 2019 onwards employees of the company, if they had traded in the shares of the company which exceeded Rs. 10 lacs in a calendar quarter, they were not required to disclose to the company of such transactions.
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9. The learned counsel for the appellants contended that the appellants had only done intra-day trading so as to generate a second source of income. It was urged that the appellants had never acquired any of the shares as these were intra-day trades which was squared off on the same date and thus, the appellants had neither acquired nor disposed of the shares and were thus, not required to disclose to the company under Regulation 7(2)(a) of the PIT Regulations. It was also urged that the amendment which came into effect from April 1, 2019 amending Regulation 7(2)(a) of the PIT Regulations should be applied retrospectively since it was a beneficial piece of legislation.
10. On the other hand, the learned counsel for the respondent contended that even in intra-day trading, there is an acquisition and disposal of shares and, therefore, it is incorrect to state that intra-day trading does not make any acquisition or disposal of shares. It was further urged that the amendment in Regulation 7(2)(a) came into effect from April 1, 2019 which is perspective in nature and cannot apply to the trades which the appellants had been executed during the period January 1, 2019 to March 31, 2019.
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11. In Commissioner of Income Tax (Central) - I, New Delhi vs. Vatika Township Pvt. Ltd. [(2015) 1 SCC 1], the Hon'ble Supreme Court had led down the general principle concerning retrospectivity of a legislation. The Hon'ble Supreme Court held that if a legislation confers a benefit on some persons but without inflicting the corresponding detriment on some other person or on any public generally, and where to confer such benefit appears to have been the legislators' object, then the presumption would be that such legislation is given a purposive construction and should be given retrospective effect. The Hon'ble Supreme Court further held that where the law is enacted for the benefit of a community as a whole, even in the absence of the provision the statute may be held to be retrospective in nature.
12. The Hon'ble Supreme Court held as under :-
"30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators' object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions 8 as retrospective. In Govt. of India v. Indian Tobacco Assn., the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here."
"31. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectively. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to be assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by outweighing factors."
13. Admittedly, Regulation 7(2)(a) of the PIT Regulations, as it existed on the day of the transaction required an employee of the company to disclose the transactions to the company if the aggregate value exceed to Rs. 10 lac in a calendar quarter. 9
14. In 2018, SEBI recognized that bringing employees who were not expected to come into possession of any UPSI i.e. employees who were not designated persons in the company within the scope of Regulation 7 was patently erroneous and caused unintended consequences. Thus, SEBI, pursuant to the recommendations of Committee on Fair Market Conduct under the chairmanship of Dr. T. K. Vishwanathan, Ex-Secretary General, Lok Sabha and Ex-Law Secretary in August 2017 ("the Committee") carried out amendment to Regulation 7(2)(a) of the SEBI (PIT) Regulations. The Committee was mandated to review the existing legal framework to deal with market abuse to ensure fair market conduct in the securities market. The Committee was also mandated to review the surveillance, investigation and enforcement mechanisms being undertaken by SEBI to make them more effective in protecting market integrity and the interest of investors from market abuse. The Committee made several recommendations and inter alia recommended that the applicability of the Code of Conduct must be only to "designated person(s)". Specifically with respect to Regulation 7(2), the Committee Report states the following :
"The Committee noted based on the feedback from listed companies and market participants that 10 Regulation 7(2) of the Insider Trading Regulations requires every promoter, employee and director to make disclosures to the listed company (and onward by the listed company to the stock exchange(s) if thresholds therein are met. Such requirement results in every employee of the listed company (including those who cannot be expected to be in possession of UPSI based on their role / function) to make disclosures under this regulation. This puts undue burden on the listed company, it employee and compliance officers, particularly where the company has hundreds or thousands of employees.
The Committee recommends that the regulation 7 may be suitably amended to restrict applicability of these regulation to promoters, directors and designated persons only. (As per the new definition promoter, CEO and two levels below CEO will be covered under designated person)".
15. Considering the aforesaid, we find that admittedly the appellants had traded in the scrip of the company but were not in possession of any unpublished price sensitive information. We also find that for non-disclosure, the company had taken action against these employees.
16. In view of the aforesaid, coupled with the fact that no disproportionate gain or unfair advantage resulted to any party for the default committed by the appellants, coupled with the fact that no loss was caused to the investors, as a result of the aforesaid 11 default, we are of the opinion that without going into the controversy as to whether the appellants had in fact acquired or disposed of the shares through intra-day trading and whether the appellants have in fact violated the provisions of Regulation 7(2)(a) of the PIT Regulations, and in view of the decision of the Hon'ble Supreme Court in Commissioner of Income Tax (supra), the amendment made in Regulation 7(2)(a) with effect from April 1, 2019 would apply retrospectively. We are of the opinion that the amendment was a beneficial piece of legislation and the benefit was conferred for the entire community as a whole. As such, even though the amendment came into effect from April 1, 2019, the amended provision would apply with retrospective effect to the transactions made by the appellants.
17. In view of the aforesaid, we find that the appellants have not committed any violation of the provisions of Regulation 7(2)(a) of the PIT Regulations. Consequently, the impugned orders against the appellants cannot be sustained and are quashed. Both the appeals are allowed with no order as to costs.
18. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on 12 the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member RAJALA Digitally signed by RAJALAKSHMI KSHMI H HDate:
NAIR 10.10.2022 NAIR 2022.10.13 17:58:38 +05'30' PTM